Newsletter Spring 2013

Child benefit clawback

Many people are confused by the media coverage of the tax clawback of child benefit. This new rule will complicate the tax affairs of a lot of people, and many couples will have to pay back some or all of their benefit as tax.

No one loses the right to receive their child benefit. You can decide to stop receiving it to avoid the bother of having to pay it back to HMRC later, but HMRC will only take instructions directly from the benefit claimant to stop those payments.

It’s not necessary to give that instruction. The tax charge to clawback the benefit only applies where one parent has net adjusted income of over £50,000 for the entire tax year. Even then, the tax charge will only take back the whole amount if the adjusted income of the higher earner is £60,000 or more.

The adjusted income figure is your total taxable income after deducting charitable donations, pension contributions and losses, but before deducting your personal allowance. Until the current tax year ends on 5 April 2013 you can’t calculate your income with complete certainty. So unless you’re certain it will be more than £60,000, you can’t be sure that 100% of your family’s child benefit will be clawed back by a tax charge. The claimant could hang on to the child benefit for now, then the higher earner can pay any extra tax due in January 2014. The tax charge can’t be more than the benefit you or your partner has received: you can’t be worse off by receiving the benefit and paying it back.

If you don’t want the complications of one partner receiving the money and the other paying it back to HMRC, you can ask for the child benefit payments to stop at any time. Any child benefit already paid since 7 January 2013 will have to be reported on the higher earner’s tax return, but there won’t be further shuffling of money backwards and forwards in future. If you find your adjusted net income was not more than £60,000 you can ask for the child benefit payments to start again, and those payments will be backdated to the date they stopped.